ECON Final

Suppose it takes 50 hours for a German to make one rotid, and 100 hours to make one tauron. In Italy, it takes 150 hours to make one rotid and 200 hours to make one tauron. The opportunity cost of making one rotid in Germany is______________ and the opportunity cost of making one tauron in Italy is ____________.

1/2 taruon; 4/3 rotids

According to the quantity theory of money, if money supply is $1,000 million, the overall price level is 200, and real GDP is 50 million, then the velocity of money is equal to:

10

What makes a bigger contribution to GDP, 12 million cars sold at $28,000 each or 20 million computers sold at $1,000 each?

12 million cars

If the price level in 2016 is 140 and it falls to 133 in 2017, what has the economy experienced between 2016 and 2017?

5% deflation

Which statement is TRUE?

A bond is like an IOU

The United Nations estimates that Earth's population growth rate will slow down by the year 2050 at which time population may start to decrease. If technological change allows the supply of oil to increase at a constant rate, and nothing else changes, what effect will a slowdown in population growth have on the price of oil?

Demand will increase more slowly during this period, but since supply is growing at a constant rate, the rate of price increase will fall, and ultimately the price of oil may begin to fall

Which statement best describes the cross-country evidence on the relationship between a nation's GDP per capita and standard measures of societal well-being?

GDP per capita is positively related to measures of societal well-being

Stocks are a good investment if: I. one is prepared to hold them for a while through market fluctuations. II. one can buy them immediately after prices have fallen. III. one is not averse to risk.

I and III only

Which of the following is a lag that the Fed DOES NOT face?

Legislative lag

How might changes in marginal tax rates on married couples affect labor force participation rates?

Lower marginal tax rates on married couples encourage higher labor force participation rates by the secondary income earner.

Under the current law, which tax is proportional?

Medicare/Medicaid tax

A market can be described by the equations Qd = 50 - 3P and Qs = 2P. What are the equilibrium price and quantity in this market?

P=10, and Q=20 units

A shortage occurs whenever the price is set above the equilibrium price

TRUE

According to the Fisher effect, a 5% decrease in the expected inflation rate results in:

a 5% decrease in the nominal interest rate

When a fund manager tries to pick stocks to outperform the market averages, the mutual fund is called a(n):

active fund

In the Solow model, if a country's saving rate increased from 10% to 12% and it was operating at its steady state before the change, we would expect to see:

an increase in both output and the capital stock

The FICA tax burden is:

borne more by the employee even though the employer contributes an equal dollar amount

Based on the discussion in the textbook, the Great Depression was caused by:

both aggregate demand shocks and real shocks

If the Fed overreacts to a negative spending shock by increasing money growth too much:

both real GDP growth and inflation will increase more than the Fed prefer

Iceland produces two goods: Viking hats (Y) and fish (X). Its production possibilities frontier is characterized as Y = 50 - 2X and tells us that the opportunity cost of catching (producing) an additional unit of fish in Iceland is:

constant in fish product

Conditional convergence refers to the tendency for:

countries with similar steady-state levels of output to grow faster when they're poor than when they're rich until their per capita GDP levels converge

Which of the following limit the effectiveness of fiscal policy?

crowding out

Tight monetary policy leads to a long period of disinflation and high unemployment if:

d. nominal wages are sticky

If you earned $10-an-hour in 2005 when the CPI was 100, and you earn $11-an-hour today when the CPI is 120, then your real wage rate has _____ since 2005.

decreased

Diversification typically ______________ portfolio risk.

decreases

If the government raises taxes on investment returns, then the:

demand for loanable funds will decrease and the equilibrium interest rate will decrease.

In reference to the consumption-smoothing theory, a person typically saves the most:

during working years

The labor force consists of:

employed workers and adults who do not have jobs but who are looking for work

When the Fed buys short-term Treasure securities, short-term interest rates:

fall

Countries that are NOT landlocked tend to grow _____ because _____

faster; easy access to water naturally opens a country to trade

The AD-AS model is most useful for explaining what causes:

fluctuations in GDP growth around its trend rate.

Communal property creates a

free rider problem

The short-term unemployment caused by the ordinary difficulties of matching employee to employer is called:

frictional unemployment

Low interest rates in 2003-2004:

increased demand for homes

An increase in expected inflation will cause the economy's long-run aggregate supply curve to:

remain unchanged

A movement along a demand curve can be caused by a change in

technology

A monetary rule works best when

there is a financial crisis

A decrease in the price of one substitute good causes:

a leftward shift in the demand curve for the other substitute good.

What type of shock could be responsible for an increase in growth and a decrease in the inflation rate?

a positive real shock

Government spending is expected to increase sharply in the future because of spending on

environmental protection

The principle of diminishing returns to capital implies that a country that loses much of its capital during a war will:

experience a faster growth rate than before the war

Suppose the reserve ratio for all banks is 20%. If the Fed increases bank reserves by $200, then the money supply will:

increase by $1000

As income rises, the average tax rate in the U.S.:

increases in steps

A farmer can grow either apples or oranges. An increase in the price of apples ______ the opportunity cost of growing oranges so that the supply curve of oranges shifts ______.

increases; up and to the left

The money you pay into social security goes to:

pay current beneficiaries

Trade creates value because:

people exchange things they do not want for things they do

When economists speak of "long-run economic growth," they mean increasing the:

per capital real GDP of a country

In the United States, most scientists who research and develop new products work for:

private firms

During the financial crisis, because of high leverage, losses on mortgages:

pushed banks toward insolvency.

A major hurricane hitting the East Coast of the United States is an example of a:

real shock

An assumption of the quantity theory of money is that the velocity of money:

remains relatively constant

The Fed has the most control over:

the monetary base.

Which statement correctly describes the relationship between risk and return?

Risk and return have a positive relationship

Current forecasts say that mild inflation is expected in the next year. If, however, deflation occurs instead:

lenders on existing fixed rate loans will gain while borrowers will lose.

In the life-cycle theory of saving, one's consumption path is _____ one's income path.

less volatile than

The fundamental problem the Fed faces as a bank regulator is:

limiting systemic risk while checking moral hazard

Assume a country's production function changes from Y = 2K1/2 to Y = 3K1/2 Which of the following events could explain the change in this production function?

the development of new technology in production

The production function is a mathematical function that shows:

the relationship between output and the factors of production

The "quantity theory of money" describes the relationship among:

the velocity of money, money supply, real output and prices.

Which of these goods is an intermediate good and would NOT be counted in GDP in the year it is produces?

wood used for making furniture

There are 100 consumers, each of whom values a concert ticket at a unique whole number dollar amount between $1 and $100. One customer is willing to pay $1, a second is willing to pay $2, a third is willing to pay $3, and so on. An unlimited number of concert tickets are on sale for $15 each. What is the total consumer surplus in this market?

$3, 612.50

If a country's initial real GDP is $60,000 and its annual growth rate is 5%, use the rule of 70 to determine approximately how many years it would take for this economy to double its GDP

14

Imagine an economy with production function Y = F(K) = K1/2 and 400 units of capital. If the fraction of output invested in new capital is γ = 0.2 and the depreciation rate is δ = 0.05, what is the steady-state amount of capital?

16 units.

If GDP was $10 billion in 2016 and $11 billion in 2017 and population grew 5% between 2016 and 2017, the growth rate of GDP per capita between 2016 and 2017 was

5%

A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. What is this country's labor force participation rate?

66.7%

In a country where both the labor force participation rate and the unemployment rate are very low, which of the following answers explains why this may be the case?

A large percentage of the population is aging and thus has retired.

In 1970, 1.3 barrels of oil were used to produce $1,000 of GDP. In 2004, it took only 0.64 barrels of oil. What implications does this have for economic fluctuations in the United States today?

Spikes in oil prices will not have as severe an impact on the U.S. economy today as they did in the 1970s.

Which of the following statements highlights the difference between the CPI (consumer price index) and the GDP deflator?

The CPI measures the average prices of goods and services consumed by typical consumers, whereas the GDP deflator measures the average prices of all goods and services in the economy.

What is TRUE when measuring the role of the government in an economy by the amount of government spending?

The amount of government spending understates the role of the government in the economy of the effects of government policies on economic activity.

Brazilian rosewood is renowned for its tonal qualities and gorgeous figuring on acoustic guitars. However, Brazilian rosewood is now banned from use in the construction of new guitars. What will likely happen to the price of used Brazilian rosewood guitars over time?

The price for used Brazilian rosewood guitars will increase because there will be a smaller supply of those guitars on the used market.

Suppose a high-income individual, subject to a 15 percent capital gains tax rate, sells 100 shares of company X and makes a loss of $500. She also sells 100 shares of company Y and makes a profit of $1,200. How much capital gains tax does she pay?

$105

The aggregate demand curve is a straight line with a slope of:

-1

Mistimed contractionary fiscal policy can cause:

a recession

The principle of compounding implies that:

a small difference in the rate of investment returns can have a large difference over a long period.

Nobel-prize winner Milton Friedman advocated what as an adequate monetary policy?

a strict rule in which the money supply should grow at the long-run economic growth rate

An increase in demand causes a:

a temporary shortage at the old equilibrium price and a higher new equilibrium price and quantity

A potential problem with expansionary monetary policy is that banks:

be unwilling to extend loans

A country increases its physical capital by engaging in:

investment

In a steady state, the level of investment

is equal to depreciation

The Federal Reserve acquires its unique power through its ability to:

issue money

The efficient markets hypothesis implies that:

it is not possible to systematically pick stocks that outperform the market.

If employers can fire an employee for any reason, other things equal:

it will be easier for job seekers to fine employment.

A price ceiling below the equilibrium price generates

lost consumer surplus

Under current law, if the marginal tax rate is 24%, your average tax rate is:

lower than 24%

The term business fluctuations refers to:

movement in real GDP around its long-term trend

The law of demand suggests a _____ relationship between price and _____.

negative; quantity demanded

A shortage tends to

put upward pressure on price

Inflation is painful to stop because stopping it:

requires decreasing the growth rate of the money supply, which usually leads to lower growth overall in the short run

The process in which bank loans are bundled together and sold on the market as financial assets is called:

securitization

For most households, their largest tax liability in a year is the

social security tax

The natural unemployment rate is the rate of _____ unemployment plus the rate of _____ unemployment.

structural; frictional

A worker repairing VHS cassette-tape players was laid off because most of his customers have started using DVD players and streaming services. This worker is now:

structurally unemployed

Moral hazard occurs when banks and other financial institutions:

take on too much risk. believing that the Fed will bail them out

The Federal Reserve can influence the economy by shifting:

the AD curve

An increase in government spending causes:

the aggregate demand curve to shift to the right

The multiplier effect of fiscal policy is greater when

the inflation rate is high and increasing

When consumers receive tax rebates and use them to pay down debt rather than increase spending:

the inflation rate is high and increasing

Commercial banks make profits primarily through:

the interest rate differential between deposits and loans.

Which of the following is included in US GDP?

Price paid by a French tourist at a New York hotel.

Which statement is consistent with the predictions of the simple Solow model with no technological advancement?

In the long run, economic growth is zero.

Which of the following would cause the aggregate demand curve to shift to the right?

an increase in the growth rate of the money supply.

A rise in the price of oil indicates that

oil is relatively more scarce

The real business cycle (RBC) model implies that:

business. cycles are driven by real shocks to the economy

When a market is competitive:

buyers compete with buyers, raising prices; and sellers compete with sellers, lowering prices.

Which of the following represents loaning money to a firm?

buying a bond.

Disinflation is a decrease in the:

inflation rate

Which of the following defines the "rules of the game" that structure economic incentives?

institutions

The implementation lag is likely to be:

longer for changes in government spending than for changes in taxation.

An increase in unemployment benefits tends to:

lower the incentive to search for a job and raise structural unemployment

If equilibrium price increases while equilibrium quantity decreases, then we know that:

market supply has decreased.

Roses grown in Kenya travel to Amsterdam and ultimately to your local flower shop because:

markets coordinate the specialization and trade necessary for the flower industry to function

Government expenditures include all of the following EXCEPT:

medicaid payments.

Money illusion is:

mistaking changes in nominal prices for changes in real prices.

Investment is:

the purchase of new capital goods

The expected returns of different assets, adjusted for risk, should be:

unknown in most cases